Former U.S. President Donald Trump during a campaign event at Trump National Doral Golf Club in Miami, Florida, United States, Tuesday, July 9, 2024.
Eva Marie Uzcategui | Bloomberg | Getty Images
As markets have ramped up bets in recent weeks that Donald Trump will win the presidential election, Goldman Sachs economists said the former US leader’s re-election could have “profound consequences” for the euro zone economy.
“Our baseline estimates suggest that GDP (gross domestic product) There will be a substantial growth of about 1%, and inflation will increase slightly by 0.1 percentage point.
“A Trump re-election would therefore pose a significant downside risk to our otherwise constructive growth forecast for the euro area.”
They explained that Europe could be affected by trade policy uncertainty, increased defense and security pressures, and spillover effects from U.S. domestic policies such as taxes.
Trump said he was grazed by a bullet during an assassination attempt at a rally in Pennsylvania on Saturday. The shooting left one attendee and the shooter dead, while two other attendees remain in critical but stable condition.
Some analysts said the events could increase Trump’s chances of taking back the White House in the U.S. election later this year, and some assets had rallied on Monday as markets priced in that possibility.
Even before Saturday, Trump’s chances for a second term as president had risen following President Joe Biden’s poor performance in the presidential debates weeks ago. Goldman Sachs said in a report on Friday that betting markets expect Trump to have about a 60% chance of winning in November, with reports over the weekend that this number has risen again.
trade tensions
Analysts Stern and Moberly said Trump’s trade policies and the uncertainty surrounding them could be a factor affecting the European economy, just as they were during his previous presidency.
trade tensions During Trump’s last term, relations between the U.S. government and the European Union heated up dramatically. European steel and aluminum tariffs Proposed by the United States, resulting in the EU imposing tariffs on American goods. For months, there have been concerns about whether other industries such as automobiles would face higher tariffs This disrupted market sentiment.
“Trump has pledged to impose sweeping 10% tariffs on all U.S. imports, including those from Europe, which could lead to a sharp increase in trade policy uncertainty, as was the case in 2018-19,” the research report said. Wall Street the bank said.
Economists explain that historically, this uncertainty has had a significant, ongoing impact on economic activity in the euro area. They estimate that trade policy uncertainty reduced euro area industrial production by about 2% in 2018 and 2019.
Stern and Moberly said some countries, such as Germany, are expected to be more severely affected because they rely more on industrial production.
Economists said trade tensions could also lead to a hit to euro zone gross domestic product (GDP), and while uncertainty over trade policy could lead to lower prices, higher tariffs could push them up.
defense and security pressure
Trump is expected to lower the price as well, or completely cutU.S. aid to Ukraine and advised him Won’t help NATO countries Ineligible military alliance 2% defense spending requirement.
Goldman Sachs said meeting the 2% requirement and potentially covering at least some of the U.S. financial support for Ukraine could affect the European economy.
“As a result, European countries may need to provide an additional 0.5% of GDP per year in defense spending during Trump’s second term,” the research report said, adding that the increase in additional military spending would be modest.
Stern and Moberly explained that Trump’s defense policy toward Europe and his stance on NATO may also create geopolitical uncertainty and risk, particularly if it raises questions about the extent of the U.S.’s commitment to military alliances doubts.
spillover effects of domestic policies
The third way Trump’s policies affect the euro zone economy is through domestic programs in the United States, such as tax cuts and reduced regulations.
Goldman Sachs economists said: “The U.S. macro policy shift during Trump’s first term has had significant spillover effects on Europe through stronger U.S. demand and tightening U.S. financial conditions.”
Stern and Moberly said expected U.S. tax cuts could boost economic activity in Europe, but combined with other expected market changes, the overall impact was likely to be limited.
“However, net financial spillovers are likely to be muted as we expect the impact of higher long-term interest rates to be offset by significantly weaker interest rates. EURconsistent with the actions taken after the November 2016 elections,” they said.
